Donald Trump wants the Federal Reserve to cut interest rates. And on Friday, he threatened to disrupt U.S. trade with countries around the world if the central bank doesn’t do it.
The timing was remarkable. Just hours earlier, the government had released a much stronger-than-expected jobs report showing that employers added 162,000 jobs in August while the unemployment rate held at 4.1%. The report was strong enough to put a potential Fed rate hike back on the table.
Trump’s response was to demand the opposite.
“LOWER THE RATE OR I’LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT,” Trump wrote Friday on Truth Social.
He argued that the United States should have the lowest interest rates in the world because, in his view, America is a stronger credit.
“Lower the interest rates because the U.S.A. is a much stronger credit than it was just a short time ago!” Trump wrote. “A STRONG COUNTRY MEANS A LOWER INTEREST RATE – IT’S A BETTER CREDIT…Very simple!”
Except it isn’t that simple. The Federal Reserve doesn’t determine interest rates by looking at America’s equivalent of a credit score.
The Fed’s Federal Open Market Committee sets the federal funds rate as part of monetary policy, taking into account conditions including employment and inflation. The federal funds rate is a tool for influencing economic activity and price pressures—not a mortgage rate offered to a borrower based on their creditworthiness.
And the latest economic numbers aren’t exactly screaming for an emergency rate cut.
Employers added 162,000 jobs in August, while the unemployment rate remained at 4.1%. It was the strongest monthly job gain in five months and a sharp rebound from the weakness seen earlier in the summer.
That matters because a stronger labor market can give the Fed more room to keep rates elevated if inflation remains a concern.
Reuters reported Friday that the jobs numbers had brought the possibility of another Fed rate increase back into focus.
Trump, meanwhile, is demanding a cut. And he’s tying that demand to trade.
His threat was not simply to impose another tariff. Trump said he would stop trading with other countries.
That’s a vastly more sweeping proposition.
It also raises an obvious concern: Blowing up trade relationships could actually hurt the economy.
A major trade disruption could create new economic problems—and potentially make the Fed even more cautious about cutting rates.
Trump has also repeatedly argued that the United States is being disadvantaged because other countries have lower interest rates.
But the Fed isn’t supposed to set monetary policy to make America’s interest rate match another country’s.
Its decisions are based on conditions in the U.S. economy.
And the central bank is institutionally separate from the White House. The president can pressure the Fed publicly, but the Federal Reserve’s rate-setting process is not controlled by the president.
If Trump follows through on the trade threat and significantly disrupts commerce with major trading partners, he could end up weakening the economy while demanding that the Fed lower rates to support it.
In other words, the president could be threatening to create the very economic problems that would make his preferred monetary policy harder to justify.
